The cost of implementing a Government equal pay directive could land West Midlands councils with a #1billion bill.

Local authority leaders are warning of sharp council tax increases and cuts in services unless they are given permission to meet the additional costs through borrowing.

Single Status reforms, guaranteeing equal pay for equal work, are likely to see thousands of female council employees win significant pay rises backdated for six years.

But councils across the country are facing a "totally unmanageable burden" in adopting equal pay for women staff, according to the Local Government Employers organisation.

Birmingham City Council and other West Midlands local authorities have already been hit by legal action brought by trade unions on behalf of women workers who say the backpay they have been offered is insufficient.

Unofficial estimates of Birmingham's equal pay liability put the figure at #250million. The council is refusing to comment.

An LGE report urges the Government to give permission to borrow cash to raise the money needed to meet their liabilities by a deadline of next March.

LGE warned that services will be jeopardised if the Treasury does not lift a #200million national ceiling on "capitalisation" – borrowing money against the security of council-owned assets.

Managing director Jan Parkinson suggested the ceiling may have been imposed because of the impact widescale council borrowing would have on the Treasury’s ability to meet Chancellor Gordon Brown’s "golden rule" that Britain’s books will balance over the economic cycle.

The LGE also urged Ministers to consider legal reforms that would ensure employers and unions can reach agreements on equal pay via a process of arbitration.

It blamed the crisis on a string of cases brought by no-win no-fee solicitors against councillors, officials and unions in a bid to maximise the back-pay received by women workers.

Unions have been reluctant to agree collective settlements with councils following an employment tribunal ruling in Middlesbrough, which found the GMB discriminated against a female member by accepting a low back-pay deal, it said.

LGE analysis found that the largest liabilities – which will have to be accounted for in council books for 2007/08 – are in the West Midlands (#928million), the North-west (#740million) and Yorkshire & Humber (#371million).

It estimates the national cost of settling cases could be #3billion.

A spokesman for the Treasury said: "The Government is meeting its strict fiscal rules, including the golden rule, and will continue to do so.

"It is for local government to ensure it implements pay reviews which remove discriminatory aspects of its pay structure and tackles equal pay proactively and in an affordable manner."